Calmer day in markets
It was a reasonably calm day in markets yesterday. Oil prices remained relatively steady and European gas prices edged down a bit further. The main currency pairs traded in fairly narrow ranges with the dollar ending marginally firmer relative to Monday’s closing levels. EURUSD and GBPUSD are currently trading at about $1.16 and $1.34 respectively, leaving EURGBP hovering around £0.8650. Reports doing the rounds about potential talks regarding a US-Iran ceasefire is helping market sentiment generally this morning.
Government bond yields nudged higher yesterday, mainly at the short-end of curves. German 2-year yields rose by about 10bps while equivalent UK and US yields were 4-5bps higher. Equity markets didn’t do a whole lot with US and European stocks ending marginally lower (S&P 500) and marginally higher (Stoxx Europe 600) on the day respectively. Asian equities had a very positive session overnight though and European markets have opened a good bit higher today also.
The Composite PMIs for the Euro area, UK and US fell in March amid the conflict in the Middle East, though all three remained above the key 50 level pointing to continued but modest economic growth. Not surprisingly, input cost inflation picked up sharply, mainly due to rising prices for fuel, transportation and energy-intensive raw materials, while expectations for business activity for the year ahead deteriorated from February.
Bank of England MPC member, Huw Pill, believes “upside risks (to inflation) are mounting as a result of events in the Gulf” and reiterates that he is “ready to act (on interest rates) if necessary.” He says “the fog of uncertainty in which we always operate cannot be an excuse for inaction”, adding that “the task of monetary policy-makers is to provide clarity on their pursuit of the inflation objective in an uncertain world.”
UK headline inflation remained at 3% in February according to data released earlier this morning, while core inflation – which excludes energy and food prices – nudged up to 3.2% from 3.1% in January. Within core, services inflation dipped to 4.3% (from 4.4%) but this was offset by an increase in goods inflation to 1.3% (from 0.8%). The Bank England said last week it expects headline inflation to average 3% in Q2 this year, rising to around 3.5% in Q3.
Economic data scheduled for the rest of today include the IFO business climate index for March in Germany and import/export prices (February) and the current account balance (Q4 2025) in the US. A number of ECB members, including President Lagarde, are due to speak over the course of the day.